Russia’s Biggest Banks to Start CBDC Trial this Month
Starting on August 15th, the Bank of Russia (BoR) will embark on its central bank digital currency (CBDC) journey. The central bank will bring in 13 commercial banks to test the digital ruble, alongside a select group of clients, according to Olga Skorobogatova, First Deputy Governor of the Bank of Russia.
During the testing in an institutional environment, the digital ruble will undergo tweaks for a smooth transition into retail. This includes opening digital wallets, person-to-person digital ruble transfers, automatic bill payments, and QR code-enabled payments across 11 Russian cities.
In 2024, testing will expand to business-to-business transfers and dynamic QR code-enabled payments, with expanded templates for automatic bill payments. Based on BoR’s projections, the digital ruble should be fully deployed for businesses and individuals by 2025.
EU Lagging Behind Russia in CBDC Development
In contrast, Russia’s historic trading partner, the now embattled EU, plans to launch the digital euro in 2027. As a fragmented union with heavy bureaucratic machinery, Europe’s CBDC is undergoing multiple feature-testing cycles.
The digital ruble and the digital euro are based on permissioned distributed ledger technology (DLT), using self-executing smart contracts to automate payments in various contexts. The question is, what does Russia expect from fast-tracking its CBDC deployment?
What Makes Digital Ruble Worthwhile to Pursue?
In March 2023, the Bank of Russia (BoR) postponed digital ruble testing scheduled for April. Testing of real-time payments needed another regulatory framework to pass through the State Duma Committee on the Financial Market.
After more delay, President Vladimir Putin signed the package of bills on the digital ruble on July 24th. The goal is simple; take advantage of smart contracts to streamline Russia’s financial infrastructure, including cross-border payments.
“Using smart contracts should lead to a reduction in the operational burden on banks and make the transactions of clients themselves transparent, which will not only reduce the possibility of misuse of the earmarked funds allocated by the state and business, but also unequivocally simplify control over concluded contracts“Vitaly Kopysov, Innovation Director at Sinara Bank, one of the selected 13 banks to participate in testing
Russia’s CBDC initiative stems from BoR’s Guidelines for Financial Technology Development for 2018-2020. At a high level, this framework set the digital ruble to promote financial market competition, reduction of risks and costs, increase financial inclusion, and Russia’s international competitiveness.
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Digital Ruble Logo and Transaction Fees
On August 3rd, BoR finally approved the digital ruble logo, adding traditional coin elements with the symbolism of the existing Bank of Russia logo. As such, users will become acquainted with it across mobile banking apps serving as their digital wallets.
Regarding digital ruble transaction fees, BoR is going for maximum adoption first. For this reason, citizens will have zero fees for payments and transfers. This includes zero transfer costs between bank accounts and digital wallets and vice-versa.
On the other hand, businesses will have a fee of 0.3% for accepting payments for goods and services, but not above ₽1,500 ($15.48). Likewise, housing and utility companies must pay 0.2%, but not above ₽10 (14 cents).
Both businesses and individuals could open digital wallets without any fees. This fee regime should go into effect from January 1st, 2025, after digital ruble feature testing is completed and the CBDC is fully launched.
Could Digital Ruble Lessen the Blow from Sanctions?
By 2025, likely, the Ukraine war will long be over. However, having become technically operational on August 1, the digital ruble could be used in its prototype form. Presently, Russia is suspended from the Bank for International Settlements (BIS), based in Basel, Switzerland.
This represents a stumbling block for Russia’s international presence as BIS is a clearing house for international payments. Furthermore, the BIS suspension lowers Russia’s creditworthiness, effectively restricting access to international credit lines.
According to Vladislav Ginko, economic lecturer at the Russian Presidential Academy of National Economy and Public Administration (RANEPA), the digital ruble could bypass this obstacle. That’s because digital ruble is not based on a single protocol visible on the BIS network.
“Quite the contrary, with the help of the digital ruble in foreign trade, it is possible to effectively bypass the financial sanctions of Western countries,”Vladislav Ginko via BRIEF Telegram channel
Of course, it would be up to other central banks to interface with BoR’s digital ledger directly, likely via BRICS nations and accompanying applicants. The digital ruble could be made interoperable with the BIS network if political conditions allow it down the line.
So far, sanctions have hurt the EU more than Russia, as evidenced by the EU entering a recession. Germany was especially hit by the sabotage of the Nordstream 2 pipeline, cutting off access to cheap Russian gas.
While Russia is mainly self-sufficient and abundant in natural resources, Europe is struggling with soaring electricity prices, further exacerbated by Germany’s bizarre efforts to dismantle its nuclear power infrastructure.
Per the Economist Intelligence Unit (EIU), 64% of the world’s population lives in neutral or Russia-supporting nations. Do you think the digital ruble will increase Russia’s competitiveness on the international stage?